Flexible Drawdown - Reasons to Delay

BazzerPontefract

I have a stakeholder pension plan.
I qualify for flexible drawdown by age and guaranteed income.

I am about to convert the stakeholder to a SIPP and put it into Flexible Drawdown.

Given the budget changes and the on-going government/pensions-industry consultations, is there any reason to delay starting this the process?

Thanks

dunstonh

Given the budget changes and the on-going government/pensions-industry consultations, is there any reason to delay starting this the process?

The proposals dont really affect you.

kidmugsy

BazzerPontefract wrote: »

I am about to convert the stakeholder to a SIPP and put it into Flexible Drawdown.

Given the budget changes and the on-going government/pensions-industry consultations, is there any reason to delay starting this the process?

if you open Flexible Drawdown you are excluding the possibility of ever contributing to pensions again. Conceivably this may be a reason to delay, if only to see whether the restriction will be retrospectively removed.

Bootsox

dunstonh wrote: »

The proposals dont really affect you.

I am in a similar position to the OP, I think there will be some possible (indirect) benefits associated with the forthcoming changes:

• More internet blogging/debate/awareness
• More competitive products (lower charges) and greater product range as the scope for flexible drawdown expands to cater for a much bigger market

So, in answer to the OP's question, there may be a reason for delay if only to wait for greater/more competitive product availability.

greenglide

More competitive products (lower charges) and greater product range as the scope for flexible drawdown expands to cater for a much bigger market

Surely the case for new products (in the investment rather than the pension wrappers IMHO) has existed ever since capped drawdown has been an option?

I certainly wouldn't see new products quickly - everyone seems to be much more interested in simply emptying their pension funds.

Of course we don't know what the pensions tax bill will do and what unexpected changes to taxation and rules regarding pensions will be introduced.

What I would consider would be to only allow the 25% tax free if the remaining was used to fund a "pension product" so that pensions became a pension product again rather than a tax manipulation product as used today.

kidmugsy

There may be news on Monday.
http://www.ft.com/cms/s/0/d2852364-0e4f-11e4-a1ae-00144feabdc0.html#axzz37v3NDkuV

dunstonh

More competitive products (lower charges) and greater product range as the scope for flexible drawdown expands to cater for a much bigger market

Or increased charges as providers look to avoid their plans being used as a short term home to facilitate full fund withdrawal or short term fund withdrawal.

Technically, there isnt a need for new pension products as the ones that exist already handle that market. The market is not expected to grow by much as a) smaller funds will just take their money out instead of buying an annuity and b) larger funds already use drawdown. One market that will likely grow is some hybrid guaranteed income/annuity mish mash. However, there too we have annuities with value protect that already exist. So, a tweaking of those may just occur.

jamesd

Unless you have really urgent need to get all of the money today I suggest that you don't use flexible drawdown until the new rules are known. For many purposes the initial tax free lump sum and maximum capped drawdown withdrawing will be sufficient to allow a delay.

kidmugsy, got to love the lack of connected thinking in that plan to cut the annual contribution limit for those who've taken a lump sum to £10,000. Seems to have the idea that taking pension benefits is a once in a lifetime event and that you'll never want to pay in much more, while I'm likely instead to want to contribute in excess of £30,000 a year after first taking benefits, without doing any lump sum recycling into a pension at all.

I was thinking that the existing £40,000 limit was low enough to make complete elimination of the lump sum recycling rule worthwhile as a useful bit of simplification.

A range of reactions to the change possible, as usual involving avoiding some use of pensions for retirement planning even when they should be trying to increase their use for that, not discourage it. Base case is spend the non-pension pots to live first, so you can continue paying in to the pension for longer. Catch is that you then lose the ISA wrapper for the money you withdraw from the ISA to live on while you're delaying taking the pension money. Worth losing that for a while, though, given the benefit.

Hopefully capped drawdown will remain available and won't be affected by this.

kidmugsy

jamesd wrote: »

I was thinking that the existing £40,000 limit was low enough to make complete elimination of the lump sum recycling rule worthwhile as a useful bit of simplification.

Agreed: and eventually the Lifetime Allowance too.

Dunnit

I am in a similar position although I would not be able to start flexible drawdown until next fy. I am moving the money into a SIPP now because there may be some constraints to withdrawal in the new legislation and the easier it is to start crystallising, in this fy if need be, the better.